Claims management companies 'preying on people' who are ending up worse off even if they win PPI claims

Claims management companies (CMCs) are raking it in as more people make payment protection insurance (PPI) mis-selling claims, despite the fact they have just as much chance of making a successful claim if they do it themselves.

The CMCs should be banned from charging up-front fees, a charity said today, after research found customers are being left in the dark about the costs involved and their chances of success.

Citizens Advice has seen cases where people have won their claim for PPI mis-selling but have ended up worse off due to being saddled with large fees by the claims managers handling their case.

The typical up-front fee is £600, the
charity said, yet customers can keep all their compensation by making a
claim themselves for free.

One client had been charged £3,300 in up-front fees alone.

It found a quarter of people were in debt after forking out costs for the claims management companies' fees and charges.

Citizens Advice chief executive
Gillian Guy said: 'Claims management companies are preying on people who
have already lost out thanks to the banks' mis-selling.

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'These companies are a hindrance, not a
help. We see people who end up worse off because, despite having a
successful PPI claim, the compensation goes to pay off their debts and
they are saddled with a large fee.

'Plus many people are paying up-front fees yet never get a penny of a payout.'

The survey of more than 300 consumers
who had been contacted by CMCs found that in almost three quarters of
cases (72 per cent) when they first made contact, firms did not say when
they would charge their fees and two thirds did not specify what the
costs would be.

Less than half of firms were also clear about people's chances of making a successful claim.

The findings come as PPI claims are
continuing to rocket and estimates have put the eventual cost of the
scandal at around £15billion.

The Financial Ombudsman Service (FOS)
has said that people tend to have just as much chance of making a
successful claim if they do it themselves as when they use a CMC, with
around seven out of 10 cases upheld in consumers' favour.

It has seen the share of people using CMCs drop off sharply in recent months as consumers are feeling 'more empowered'.

Half of all the PPI complaints the ombudsman receives are now brought directly by consumers.

Consumer champions such as
MoneySavingExpert.com and Which? have been pressing the Government for
tougher regulation of CMCs. The Government recently announced a
crackdown, meaning that rogue CMCs could be forced by the Legal
Ombudsman to pay compensation to consumers.

From next year people who feel they
received a poor service from CMCs can take their complaint to the
ombudsman which has powers to ensure people receive compensation where
appropriate, up to a maximum of £30,000.

The Ministry of Justice said that
thousands of people have been let down by a 'small number' of firms and
the changes will mean tougher action can be taken against persistent
rule-breakers.

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